On December 27, 2020, President Trump signed the Consolidated Appropriations Act, 2021 (CAA) into law. A recent article from JD Supra outlines two key provisions included in the act that make changes to the employee retention credit.
Established by the CARES Act, the employee retention credit was designed to incentivize employers to maintain their staff in the midst of the coronavirus pandemic. For the period from March 13, 2020 to December 31, 2020, eligible employers could claim a 50% retention credit for qualified wages, capping out at $5,000 per employee.
The CAA both extends and expands the employee retention credit, including making retroactive changes to it for 2020. It does so via two provisions:
Section 206 – This provision makes retroactive changes back to March 13, 2020, when the ERC was established. Firstly, the ERC is now eligible for recipients of loans through the Paycheck Protection Program (PPP). Previously, PPP participants were barred from claiming the ERC. Employers should note that they may not claim the ERC on wages paid with forgiven PPP loan funds.
Secondly, Section 206 offers clarification regarding “qualified health plan expenses” and the ERC. It explains that these expenses are, indeed, eligible for the ERC, even when they are attributable to a furloughed employee who is not receiving any other compensation at the time.
The third change—another clarification—is in regard to the “gross receipts” test for tax-exempt organizations. In determining their eligibility for the ERC, tax-exempt organizations must account for all gross receipts, not just those from unrelated trade or business activities.
Lastly, Section 206 offers employers a means for catching up on unclaimed ERC for 2020. Employers should claim the additional ERC on their fourth quarter Form 941, which is due by January 31, 2021. Further guidance in this area is expected this month.
Section 207 – This second provision includes an extension of the ERC for the period from January 1, 2021 to June 30, 2021. Additionally, it expands the ERC in the following ways:
For further details, click here to read the article in full at JD Supra.